A Sustainable Workforce Starts With You

Minimum Wage Workers and Homeownership

Minimum wage earners are always trying to make enough to pay the monthly bills and to put clothes on the backs of their children. One of the first questions asked by most construction companies in the interviews for field workers is, “Do you have a car or a way to get to the jobsite every day?” If the answer is no, then the company will either help find a way or usually not hire the worker.

In addition to owning a car, one of the dreams of the construction worker is to own a house rather than rent an apartment or live with their family. Sometimes if both spouses can work and the friends and family can help, it is possible for the construction workers to “make the down,” as it is called.

For skilled craft workers, home ownership can become a reality. Pay levels in the construction industry can make the dream a reality. Unfortunately for the minimum wage worker, “raising the down” can take a long time. “How long?” you might ask.

Recently an article published in Builder Magazine online quoted a story titled, How Long it Takes to Afford a Down Payment on the Minimum Wage from a study published in Smart Asset.

The folks at SmartAsset did a study of 200 US cities to see how long it would take folks working at minimum wage to save for a down payment on a house. The results were telling.

First, let me tell you about the assumptions that they made in their analysis.

They made their list of 200 cities, then looked at each market to determine what the minimum wage worker was being paid for full time work. They assumed that the minimum wage earner would set aside 10% of their pay for their down payment fund.

Then they determined the median home value for each of the markets in the study. They assumed a 20% down payment would be needed to purchase the house. After the analysts made those assumptions, they made the calculations.

The study found that the least affordable city in the country was Arlington, Va. outside of Washington, DC where the minimum wage worker makes $7.25/hour or $15,080/year. The median home value in the Arlington market is $678,100, and a 20% down payment would be $135,620.

Based on those numbers, it would take 3 generations, or 89.93 years, for the minimum wage worker to save enough for a down payment. That seems amazing on the surface. Also note that the calculations are straight line with no allowance for an increase in minimum wage or home values. It is merely a snapshot of what it would take today in Arlington, Virginia.

You might say, “That’s absurd. What about some of the other cities where the minimum wage is higher than $7.25/hour?” Let’s take a look at San Francisco with one of the highest minimum wages on the list of 200. San Francisco is number 6 on the list of 200. The minimum wage is currently $14.00/hour or $29,120/year. The median home value is $1,024,000, and the calculation shows that it would take a mere 2.5 generations or 70.33 years for a minimum wage worker to save for a down payment in the “City by the Bay.” It's little wonder that people making much more than minimum wage are living in their cars, RVs, or on the streets.

I know, you are by now asking the simple question, “What are the cities at the bottom of the list of 200 where a minimum wage earner might have a chance to save for a down payment in less than three generations?”

We took a look, and here is what we found. At the bottom of the list, at number 200 is Detroit where the minimum wage is $8.90/hour or $18,512/year. The median home value is $43,500, and a down payment would be $8,700, yielding 4.70 years to save for the down payment. Those numbers reveal a city where the housing stock has never recovered from the recession and where there are likely fewer high paying jobs available, but if you have a minimum wage job in the Detroit area and are saving for a down payment, keep working.

Here is a chart excerpted from the list that might include a city near you.

Minimum wage jobs are obviously not the way to easily save to become a homeowner in any of the top 200 US cities in the SmartAsset study.